Fortune Brands Innovations, Inc. Q2 FY2025 earnings call

• Strategic Actions: Focus on generating growth while flexing cost structure, tariff mitigation on track to offset impact, progress on multiyear transformation with 3 pillars (redefining portfolio, business unit-led organization, simplified leadership structure). - Segment Performances: Water outperformed market with Moen gaining share; outdoors launched new brand collective and saw early results from retail reset; security had successful designs, brand campaign, and website traffic growth; digital business has ~5M active users, 220,000 digital device activations in Q2, and plans for new subscription model. - Tariff Mitigation: On track to fully offset anticipated in-year and annualized tariff impact through supply chain actions, cost-out opportunities, and strategic pricing. - Multiyear Transformation: Completed first 2 pillars, midway through third, with focus on execution, growth, and talent transition.

Water: Excluding the impact of China, the segment saw net sales growth of 2%, driven by strong results in Moen, North America and House Of Rohl. Net sales declined 2%, including the impact of China as the Chinese residential construction market was weaker than anticipated. Water point-of-sale outperformed the market and was up slightly, excluding China, compared to the broader market, which we estimate was down low-single digit to mid-single digit. Outdoors: Had a strong second quarter with low-single-digit point-of-sale growth, outpacing our core addressable markets, which we estimate were down low-single digits, during the quarter. This was offset by lower channel inventory levels versus the second quarter of 2024, which resulted in a 3% decline in sales for outdoors compared to last year. Security: Segment sales decreased 7% in the quarter, primarily due to market softness, destocking and a first half headwind from prior execution challenges in 2024, which have been addressed. This was partially offset by our commercial and professional business as well as the e-commerce channel, where we gained share across all of our product categories.

• Full year 2025 net sales expected to be flat to down 2%. - Full year EPS within range of $3.75 to $3.95. - Anticipated unmitigated tariff impact of ~$80 million in 2025 and $260 million annualized, but on track to fully mitigate. - Target operating margins: Water 23%-24%, Outdoors 14%-15%, Security 16.5%-17.5%.

• Macroeconomic uncertainty impacting consumer demand. - Tariff-related uncertainties and potential disruptions to supply chain. - Market softness and competitive pressures in certain segments.

Q: On the Connected Products business, details on the subscription model and 2025-2026 outlook?

A: Nick Fink discussed the connected business momentum, $250 million sales expectation for 2025 with run rate to $300 million, new subscription model pilot in Q3, and opportunities with insurance partners and Google partnership.

Q: On water business market share and second half impact?

A: Nick Fink talked about Moen's builder and retail performance, strong results, and future e-commerce opportunities.

Q: On Security segment retail wins and brand focus?

A: Nick Fink mentioned Master Lock's brand campaign, website traffic increase, and plans for retail shelf redesign and brand strategy to drive growth in second half and beyond.

Q: On margins, cost savings, and back half profitability?

A: Jonathan Baksht and Nick Fink discussed cost savings from new headquarters move, margin drivers in segments like water, and expected margin improvements in back half due to factors like inventory roll-off and marketing investments.

Q: On water segment margin, tariffs, and pricing?

A: Jonathan Baksht and Nick Fink explained the 25.6% margin in water was from productivity, manufacturing efficiencies, and SG&A, with disciplined pricing and plan to maintain mid-single-digit pricing and mitigate tariffs through supply chain and pricing actions.

Q: On tariff offset plan and China exposure?

A: Nick Fink and Jonathan Baksht discussed offsetting tariffs through supply chain optimization, managing 10% China COGS exposure, and working on cost and pricing to mitigate tariff impact.

Q: On tariffs, pricing, and China outlook?

A: Nick Fink and Jonathan Baksht addressed tariff rate changes, impact on pricing, China business outlook with growth in non-developer channels, and ongoing efforts to mitigate tariff risks.

Q: On tariffs, copper impact, and country exposures?

A: Nick Fink and Jonathan Baksht mentioned copper not having material impact yet, largest country exposures beyond China, and ongoing work to manage tariff risks across various countries.

Q: On back half guidance and segment breakdown?

A: Jonathan Baksht provided guidance on back half performance by segment, including Water, Outdoors, and Security, with details on net sales and margin targets.